Need a sole trader business loan? Here’s what to know

Being your own boss can be incredibly rewarding, but launching and growing a business solo isn’t always a breeze. The truth is, being a sole trader means you carry the full weight of financial responsibility. Chances are, you'll go through times when you need a financial boost to keep things moving. That’s where sole trader loans come in.

What is a sole trader?

A sole trader is the simplest business structure, where a single person owns and operates the business [1]. As a sole trader, you're legally responsible for all aspects of the business, from day-to-day operations to financial obligations and more.

Sole proprietorships are easy and inexpensive to set up, require less paperwork than companies, and are also easy to change as your business grows. As a sole trader, you may also qualify for certain tax benefits.

On the flip side, you're personally responsible for all debts and losses, and the success of your business relies entirely on you, which can make growth trickier. Plus, you may have a harder time accessing finance than companies do—but that's exactly why we're here.

Common financing needs for sole traders

Every sole trader business is different, but there are a few common financial worth mentioning:

Professional development

Whether it’s through certifications or industry events, upskilling is key for staying competitive. It helps you keep up with industry trends, improve (and/or expand) your offering, and strengthen your position in the market. But between tuition, travel, and lost income during time off work, professional development comes with a price tag—which financing can help you cover.

New equipment

If you're a tradie, farmer, artist, or creative, tools are your business. You want your workspace to be complete with all the equipment you need to offer top-tier service and take on more and bigger projects.

This requires a significant investment, especially if we're talking about heavy machinery or high-end technology. The good news is that there are business loans designed specifically for equipment purchases—but more on this shortly.

Inventory management

For sole traders in the retail space, inventory management is a big part of their work. Particularly during peak seasons (think Christmas, back-to-school, and EOFY), having enough inventory is key to meeting demand and keeping customers happy. With the right loan, you can stock up as needed and avoid shortages.

Subcontractor payments

It's common for sole traders to bring in subcontractors to help meet demand spikes or complete bigger-than-usual projects. Of course, subcontractors need to be paid—and sometimes that payment (or at least part of it) needs to happen before the client pays you. This can cause cash flow issues, which a short-term loan can help you prevent.

Vehicle financing

Whether it is to transport products, tools, or yourself, for many sole traders, owning a reliable business vehicle is a necessity. Cars, utes, vans, and trucks can be expensive, but again, there are business loans designed specifically for this common need.

Expansion

If your sole trader business has grown to the point where it's time to expand—congrats! This is a very exciting time, but also an expensive one. And the biggest challenge with expansion is that the (hefty!) cost comes before the additional revenue.

You might be planning on hiring your first employee, upgrading your eCommerce website, or opening a new location—regardless, with a loan, you can access the capital you need to grow without depleting your everyday budget.

Marketing

Good marketing means more eyes on your brand, and more eyes on your brand often means a growing customer base. Good marketing also takes time and money—and it doesn’t always pay off immediately. With access to funding, you can be consistent and strategic about your marketing efforts, even when cash flow is tight.

Types of business loans for sole traders

So, what types of loans can help you address the financing needs we just discussed?

For flexibility: Business line of credit

As a sole trader, you need flexibility to handle fluctuations in cash flow. With a line of credit, you can access funds as needed—whether it's for unexpected expenses, marketing campaigns, or inventory purchases. You pay interest only on what you use, and as you make repayments, your available credit goes back up.

For unpaid invoices: Invoice finance

Waiting for clients to pay can put a strain on cash flow. With invoice finance, you can get cash upfront for your receivables instead of having to wait for customer payments. Receive up to 80% upfront and the remainder once your customer settles the invoice.

For tools and machinery: Equipment finance

Equipment loans help you obtain capital to purchase essential tools for your business. You'll own them from the get-go and use them as collateral for the loan. Once you pay the loan off, the equipment is fully yours, no strings attached.

For work vehicles: Business car loans

Business car loans help you secure funding to buy a vehicle for your business and own it from day one without having to spend thousands of dollars at once. Once the loan is paid off, the car is yours.

For general cash flow: Unsecured business loans

If you don't own assets to offer as collateral, unsecured finance can be used for a range of business purposes, like covering cash flow, paying wages, or funding growth opportunities.

Is it hard to get a business loan as a sole trader?

Obtaining a business loan as a sole trader can be trickier than it is for established companies, and there are a few reasons for this. A big one is that companies typically have a stronger credit history than sole traders, which makes lenders see them as less of a risk.

Sole traders may not also have assets, like property or equipment, to offer as collateral—which, once again, reads as 'higher risk' for lenders and can result in higher interest rates. Plus, some sole traders may deal with inconsistent cash flow, as opposed to the stable and predictable income that lenders prefer to see.

The good news is, there's an increasing number of alternative lenders in Australia that cater to sole traders, businesses with a poor or thin credit history, and businesses without assets to use as security.

At Valiant, we have a panel of over 90 lenders, both banks and non-banks, to ensure you get a suitable product for your needs at a favourable rate. If you're looking for a sole trader loan, get a quote today.

How to improve your chances

Going for an alternative lender is a great starting point, but there are a few more things you can do:

• Have a business plan and a clear purpose for the loan
• Build a good credit score
• Maintain accurate and up-to-date financial records
• Keep your business and personal finances separate

Can you use a personal loan as a sole trader loan?

Technically you can, but chances are that a personal loan isn’t the most suitable option for your business goals. Some lenders specifically prohibit you from using personal loans for work purposes. And you'll be 100% personally liable, which means missing repayments can have a greater impact on your financial well-being.

We recommend getting a business loan so you can obtain funds designed for your company’s needs while keeping your personal and business finances separate.

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References

1. https://business.gov.au/planning/business-structures-and-types/business-structures/sole-trader